The role of an assumption in an economic theory is to:

• A. simplify complex real-world phenomena to make analysis tractable
• B. eliminate the need for empirical testing
• C. guarantee that the theory's predictions will always match reality
• D. ensure that all economic agents behave irrationally

Answer: (A)

Verified step by step guidance

1. Understand that in economic theory, assumptions are used to simplify the complex real world so that models can be constructed and analyzed more easily.
2. Recognize that assumptions do not eliminate the need for empirical testing; rather, they provide a framework within which predictions can be made and then tested against real data.
3. Know that assumptions do not guarantee that a theory's predictions will always match reality, but they help create a manageable model that can approximate real-world behavior.
4. Realize that assumptions are not about ensuring irrational behavior; instead, they often assume rational behavior or other simplified conditions to focus on key economic relationships.
5. Conclude that the primary role of an assumption in economic theory is to simplify complex real-world phenomena to make analysis tractable.